CzeCh airlines - České aerolinie

Notes to the Consolidated Financial Statements
For the Year ended 31 December 2010
annual report 2010 | 103
If the carrying value of securities and equity investments that have not been measured
at fair value is greater than their estimated recoverable value, the securities and
equity investments are provided for.
Current Financial Assets
Current financial assets consist of cash equivalents, cash on hand and cash at bank.
Derivative Financial Instruments
Derivative financial instruments including currency forwards, currency, commodity
and interest rate swaps, currency and commodity options, and other derivative
financial instruments are initially recognized on the balance sheet at cost and subsequently
are remeasured to their fair value.
Fair values are obtained from quoted market prices, discounted cash-flow models
and option pricing models, as appropriate. All derivatives are presented in other
receivables or in other payables when their fair value is positive or negative, respectively.
Based on the maturity date, they are classified as short-term or long-term
receivables or payables, as appropriate.
The Group designates derivative financial instruments as either trading or hedging.
While the Group designates all derivatives for economic hedge purposes, a portion
of short-term contracts (up to one month) are recognized as trading derivatives and
hedge accounting is not applied due to administrative costs. Hedge accounting is
applied to all other derivatives.
Trading Derivatives
Changes in the fair value of derivatives held for trading are included in the profit and
loss account as part of financial profit or loss.
Hedging Derivatives
The Group prospectively designates certain derivatives as a hedge of a future cash
flow attributable to a forecasted transaction (cash flow hedge).
Hedge accounting is used for derivatives designated in this way, provided all of the
following criteria are met:
▶ formal documentation of the general hedging strategy, hedged risk, hedging
instrument, hedged item and their relationship is prepared before hedge accounting
is applied;
▶ the hedge documentation proves that it is expected to be highly effective in offsetting
the risk in the hedged item at inception and throughout the reporting period;
and
▶ the hedge is effective on an ongoing basis (that is, within a range of 80% to
125%).
If derivative instruments do not meet the criteria for hedge accounting referred to
above, they are treated as trading derivatives.
Changes in the fair value of derivatives that qualify as effective cash flow hedges are
recorded in the “Gains or losses from the revaluation of assets and liabilities” within
equity. Where a hedged forecasted transaction results in the recognition of
a financial asset or of a financial liability, the gains and losses previously deferred in
the “Gains or losses from the revaluation of assets and liabilities” are transferred to
the profit and loss account and classified as income or expense in the periods during
which the hedged item affects the profit and loss account.
Inventory
Purchased inventory is carried at acquisition costs net of allowances. Acquisition
cost includes all direct and indirect overheads incurred to bring inventory to its present
stage and location, e.g. customs fees, freight costs and commissions.
Internally developed inventory is valued at the cost of producing the inventory which
consists of direct material and payroll costs incurred in production and the portion
of indirect costs relating to production.
Inventory material is issued out of stock at costs determined using the weighted
arithmetic average method.
Allowances
An allowance for slow-moving/obsolete inventory is recognized in circumstances